NEW SECTION 501(r) REPORTING REQUIREMENTS
FOR NONPROFIT HOSPITALS
A NEW ERA IN HEALTH CARE COMPLIANCE
Federally mandated
reporting may offer
opportunities to improve a
hospital’s relationship with
the community it serves.
The Patient Protection and Affordable Care Act of 2010 (PPACA) marks the
beginning of a new era in the provision of health care services by American
hospitals. Much of the media attention surrounding PPACA has been focused
on new regulations and mandates affecting individuals and employers. But for
nonprofit hospitals, there are new reporting obligations that, if not fulfilled in a
timely manner, can lead to loss of one of its most valuable assets — federal taxexempt status.
The new reporting obligations, which have been added to the same section of the
Internal Revenue Code that establishes the tax-exempt status of certain hospitals
(Section 501(c)(3)), are codified in IRC Section 501(r). Those nonprofit hospitals
that are covered by Section 501(c)(3) are now required to meet four specific
requirements in order to maintain tax exemption.
Nonprofit hospitals must:
• Conduct a periodic community health needs assessment (CHNA);
• Provide written financial assistance and emergency care policies;
• Establish limitations on charges for emergency or medically necessary care; and
• Set policies and procedures related to billing and collections actions.1
Since more than half of the hospitals in the United States are nonprofit, Section
501(r) requirements will have a widespread impact. In its 2010 annual survey
of hospitals, the American Hospital Association found that there are 4,985
community hospitals in the United States; of those, 2,904 are nonprofit. Another
1,068 are state or local government hospitals. If these facilities have “dual status”
as government hospitals that are also tax exempt under Section 501(c)(3), they
will be required to comply with Section 501(r).2
Impact of Section 501(r) Reporting
U.S. Community Hospitals
4,985
Nongovernment Nonprofit Community Hospitals
2,904
Investor-Owned (For-Profit) Community Hospitals
1,013
State and Local Government Community Hospitals
1,068
Number of Federal Government Hospitals
213
Number of Rural Community Hospitals
1,987
Number of Urban Community Hospitals
2,998
Source: American Hospital Association
Kurt Bennion
kurt.bennion@cliftonlarsonallen.com
612-397-3072
www.cliftonlarsonallen.com
ASSURANCE
TAX
ADVISORY
©2012 CliftonLarsonAllen LLP
COMPLIANCE TIME AND EFFORT
federal, state and local taxes, from income tax to property
tax. There would be implications for hospitals that issue
tax-exempt bonds. An exempt hospital would also lose its
charitable fundraising ability and could face damage to its
public image.
Complying with Section 501(r) is not easy. It can take
anywhere from four months to a year, and can require
a significant investment of time and money. Among
the possible outcomes are a decrease in the amounts a
hospital is able to charge for services, and a less aggressive
approach to debt collection. Depending on the size and
complexity of the organization, it may be necessary to
hire a new employee or a consultant just to manage this
issue.
A reasonable question is whether the IRS would actually
follow through and revoke the exempt status of a hospital,
especially in areas that are underserved. Although the
IRS has been silent on this issue, it seems reasonable to
assume that revocation will ultimately depend on the
specific facts and circumstances. Examples of relevant
facts would be indicators of noncompliance from
accidental, limited oversight; indicators of noncompliance
from intent to disregard, manipulate or abuse the rules;
and the speed with which the necessary steps are taken
to correct noncompliance. However, a hospital should
not count on the benevolence of any government agency
when deciding how it will meet the Section 501(r)
requirements.
In light of these new obligations and the new risk to
a hospital’s tax-exempt status, an organization might
ask itself what that status is worth, and how hard
the organization is willing to fight to maintain it. The
nonfinancial benefits of tax-exempt status should also
be considered, including goodwill in the community and
fundraising ability.
This white paper looks at each of the proposed new
requirements individually, and discusses how each can
be viewed as an opportunity to strengthen the hospital at
the same time as the hospital strengthens its community.
It should be noted that much of the currently available
information on Section 501(r) is from IRS Notice 201152 and the Technical Analysis of the PPACA, which are
not considered “authoritative.” Eventually, the IRS and
U.S. Department of Treasury will issue one or more
authoritative regulations covering Section 501(r). The
Exempt Organizations division of the IRS has stated that
those regulations are a priority for the current fiscal year.3
It is critical that all efforts made to meet these requirements
be thoroughly documented. Proper documentation is
a requirement of Section 501(r), but it can also be used
to show that a hospital is making good-faith efforts to
comply with the rest of Section 501(r) requirements.
FOCUS ON NONPROFIT HOSPITALS
Section 501(r) applies to “hospital organizations,” which
are defined as organizations that operate state-licensed
or registered facilities, or any other organization which the
IRS determines has hospital care as its principal function
or constituting the basis for its exemption under Section
501(c)(3).7 Hospital organizations include organizations
that own any interests in a hospital through a joint
venture, partnership, LLC or similar legal structure.8
PPACA means that tremendous changes are on the horizon
for nonprofit hospitals. How a hospital responds to these
changes — as a compliance burden or as an opportunity
to strengthen ties with patients and the community —
will ultimately determine the impact of this sweeping law
on that hospital and its community.
Section 501(r) also applies to “dual status” hospitals,9
which are government hospitals that also have exempt
status under Section 501(c)(3). They typically seek
exempt status so they can sponsor a 403(b) pension plan
(government agencies have a separate required pension
plan). A hospital can check the pension footnote in its
financial statements as an indicator of whether it has
501(c)(3) status. An additional resource is the IRS’ new
Select Check tool, available at apps.irs.gov/app/eos,
which identifies most 501(c)(3) charities. If the issue still
isn’t clear, the hospital can contact a qualified lawyer or
accountant for assistance.
PENALTIES FOR NONCOMPLIANCE
If a hospital fails to demonstrate compliance with the
CHNA requirement (501(r)(3)), a $50,000 excise tax may
be assessed for that year and in each succeeding year of
noncompliance.4 Organizations with multiple hospitals
can be hit even harder.5 For instance, if a health system
owns three hospitals and fails to comply for any of them,
a $150,000 excise tax will be assessed ($50,000 x 3). If the
hospitals fail to complete the assessment the following
year, another $150,000 will be due.
It should also be noted that the definition of “hospital
organizations” does not apply to facilities located outside
of the 50 states and the District of Columbia, nor does it
apply to facilities in U.S. possessions or territories.10
The lesser-known, but perhaps more serious penalty, is
the loss of tax-exempt status for noncompliance with
any of the Section 501(r) requirements.6 This is a major
risk issue and concern for all nonprofit hospitals. Loss
of exempt status would make them subject to a host of
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Finally, Section 501(r) requires that if a single tax-exempt organization operates
more than one hospital facility, each facility must meet the requirements
separately.11 A comparison of the definition of a hospital in Section 501(r) and the
definition on Form 990’s Schedule H (filed annually by certain nonprofits) shows
that they are virtually the same. A hospital that must file Schedule H will also be
required to comply with Section 501(r), although some hospitals that don’t file a
Form 990 (e.g. dual status government hospitals) are still required to comply with
Section 501(r).
POLICIES AND PROCEDURES
Federal and state governments continually evaluate the activities of tax-exempt
and taxable hospitals, seeking a clear delineation of why some hospitals deserve
tax exemption while other hospitals provide similar or identical services under a
taxable structure. One differentiating factor is a focus on individuals in greater
need. Several requirements of Section 501(r) appear to address this issue by
requiring hospitals to have in place policies and procedures that provide greater
protection to individuals in need of financial assistance. Under Section 501(r), two
written policies and two practices should already have been implemented by the
end of the tax year that started after March 23, 2010:12
Financial assistance policy
This written policy must include the eligibility criteria for financial assistance from
the hospital; a determination of whether the financial assistance includes free or
discounted care; the basis for calculating amounts charged; and the method(s)
of applying for financial assistance. If there is no separate billing and collection
policy, the financial assistance policy must also include the actions that are
allowed in the event of nonpayment.13
The financial assistance policy must also include a description of how it is “widely
publicized” to the community,14 using methods such as posting on the hospital’s
website, attaching the policies to invoices, posting policies in emergency rooms
and waiting rooms, and distribution through the admissions office. None of these
methods is “preferred,” and a combination of methods is the most common
approach.
Emergency medical care policy
Section 501(r)(4)(B) requires a hospital to have a written policy stating that
the hospital will provide care for emergency medical conditions without
discrimination, and regardless of an individual’s qualification under the hospital’s
financial assistance policy.15 An emergency medical condition is defined by
Section 1867 of the Social Security Act, which was enacted in 1986 as part of
the Emergency Medical Treatment and Labor Act (EMTALA). Based on EMTALA,
an emergency medical condition is an acute medical condition that, if not given
immediate medical attention, could reasonably be expected to result in:
• Placing the health of the individual in serious jeopardy
• Serious impairment of bodily functions
• Serious dysfunction of any bodily organ or part
For a pregnant woman having contractions, an emergency exists if there is
inadequate time for a safe transfer to another hospital before delivery, or if such
a transfer would pose a threat to the health or safety of the woman or the child.16
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EMTALA already required hospitals to follow these rules;
Section 501(r) simply requires that the specific practices
and procedures of the facility be formally written into
their policies.
collection practices uniformly applied to all patients,
regardless of whether or not they qualify for financial
assistance. Policies and practices should be in place to
Limitations on charges
Under Section 501(r), gross charges are not allowed
for any individual who qualifies for assistance under
the financial assistance policy, regardless of the type of
treatment received.17 This means that a hospital can’t
actually charge the patient gross charges; gross charges
can be used as the starting point for calculating rates. One
method that is commonly used is to reduce charges by a
standard amount, thereby ensuring that gross charges are
never actually billed.
The CHNA is a process, but the process,
conclusions and responses must be
thoroughly documented.
ensure compliance with this requirement. One extremely
useful step is a “brainstorming session” to consider any
random scenario in which collection practices violate this
requirement. Once a robust policy and/or procedure is in
place, development of a regular, periodic internal control
and/or internal audit review process is important to
ensure continued compliance.
Policies and practices must also be in place to ensure that,
for individuals who qualify under a hospital’s financial
assistance policy, the amounts charged for emergency
and other medically necessary care do not exceed
amounts charged to those with insurance coverage.18
The IRS currently recognizes three options to arrive at the
allowable charges:
COMMUNITY HEALTH NEEDS ASSESSMENT
The intention of the community health needs assessment
requirement appears to be to hold nonprofit hospitals
accountable for meeting health needs as a condition for
maintaining tax-exempt status. Some hospitals and health
systems voluntarily conduct a form of assessment for
marketing and strategic planning purposes, or to comply
with state community benefit requirements. Under
the new rules, specific information must be gathered
from individuals, government agencies, and other area
organizations, submitted to the IRS, and made available
to the public.
• Average the three lowest negotiated commercial rates,
• Lowest negotiated commercial rate, or
• Medicare rate.19
The goal is to protect the financial interests of the poor by
having charges uniformly applied to all patients, regardless
of whether or not they qualify for financial assistance.
Policies and practices should be in place to ensure
compliance with this requirement. A useful practice is a
“brainstorming session” to consider any random scenario
in which a person could possibly be charged in a way
that violates this requirement. Once a robust policy and
procedure is in place, development of a regular, periodic
internal control and/or internal audit review process is
important to ensure continued compliance.
The CHNA is a process, but the process, conclusions
and responses must be thoroughly documented.23
People tend to use the term “community health needs
assessment” (CHNA) to refer to the process of conducting
the assessment, the documents that result from the
process, or all of the above. The deadline for completing
the first CHNA is the end of the tax year that starts after
March 23, 2012.24 Beginning with that year, Section 501(r)
requires hospitals to do the following within the tax year
or the two prior years:25
Billing and collection
Before engaging in extraordinary collection actions a
hospital must make reasonable efforts at determining
if the patient qualifies for assistance under the financial
assistance policy.20 Congress has identified lawsuits,
liens on residences, arrests, body attachments, and
similar collection processes as “extraordinary collection
actions.” 21 Congress has also indicated that “reasonable
efforts” include such actions as notifying the patient of
the financial assistance policy upon admission, in any
communications (written and oral) regarding the patient’s
bill, and on invoices and in phone calls.22
• Conduct a CHNA that meets all of the procedural
requirements;26
• Document the CHNA process in a CHNA report that is
made widely available to the public;27 and
• Adopt an implementation strategy that responds to the
identified community health needs.28
After a hospital’s initial assessment, the CHNA must be
conducted every three years. The IRS has said that it
will treat the CHNA as being conducted in the year the
report is made available to the public, regardless of when
the process began.29 The IRS has said that it considers
Similar to the limitation on charges, the goal here is to
protect the financial interests of the poor by having
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the implementation strategy “adopted” on the day it is
approved by the governing body, or by a duly authorized
committee or individual.30
care), and the target population (based on gender, age,
ethnicity, or certain health risks).31 Demographic data
can be collected from hospital records, the U.S. Census
Bureau, state and county health agencies, and other
resources.
The IRS specifications for completing the CHNA and
implementation strategy provides an opportunity for
hospitals to manipulate the timing of their next required
CHNA. For example, a hospital with a December 31 year
end would have to complete its first CHNA by December
31, 2013, and its next CHNA by December 31, 2016. If the
same hospital chose to finish its first CHNA by December
31, 2012, the next assessment would be due by December
31, 2015. If the hospital had finished its CHNA report and
implementation strategy in December 2012, it could wait
until January 2013 to widely publicize the report and
approve the implementation strategy, effectively pushing
back the deadline for the next CHNA for 47 months to
December 2016.
The community should be defined broadly enough to
include all of the individuals who should reasonably be
included.32 If the community is defined too narrowly,
the government may say that target populations were
intentionally excluded. This could lead to unwanted
consequences, such as the government saying that
an acceptable CHNA was not conducted. These target
populations — minorities and those with low income,
those who are underserved and those with chronic
diseases — are generally more likely to need financial
assistance and specialized medical care, and may be less
likely to be served by a for-profit hospital.
The government hasn’t specified what demographic
information must be collected or reported, but examples
of relevant demographic data include:
The CHNA process
Although the CHNA is driven by the IRS and the U.S.
Department of Treasury, it is neither a tax analysis nor
a financial analysis. Rather, it is a snapshot of the health
care needs in a designated community. It combines
demographic data with public input to see how a nonprofit
hospital can further fulfill its tax-exempt mission.
• Household income
• Percentage below the federal poverty level
• Population growth
• Ethnicity
• Age
• Education level
• Insurance status
• Population density
• Disability rates
• Health outcomes
• Health factors
• Births
• Deaths
• Disease incidence and prevalence
The only way for a hospital to avoid Section 501(r)
compliance is to forfeit its 501(c)(3) status, either
intentionally or by default. Since these are not viable
options for most organizations, a hospital really has two
choices:
• View Section 501(r) as one more government regulation
that the hospital has to comply with; only put in minimal
time and resources to comply with Section 501(r)
requirements (no return on investment)
• View Section 501(r) as an opportunity to grow and
improve; invest reasonable additional time and
resources to go beyond the minimum (and get a return
on investment)
Soliciting community input
A properly conducted CHNA must include input from
persons who represent the broad interests of the
community served by the hospital.33 These include:
Either approach is acceptable, but it is important to decide
on a path before trying to walk it.
• Persons with special knowledge or expertise in public
health.34
• Government departments and agencies with current
data or other information relevant to the health needs
of the community.35
• Leaders, representatives or members of the specific
populations, including:36
Defining the community
A critical early step is to clearly identify the hospital’s
community. This identification determines who will be
targeted for information-gathering activities, which in
turn impacts the health needs identified. Identifying a
hospital’s community may be very easy or very difficult,
depending on the records available and the people
served. To define the community, all relevant facts and
circumstances must be used, including the hospital’s
stated mission and purpose, the geographic area served,
the hospital’s principal functions (including specialized
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oo The medically underserved37
oo Persons with low income38
oo Minorities39
oo Persons with chronic diseases40
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Section 501(r) Issues to Resolve
In Notice 2011-52, the IRS identified various issues
subject to further consideration:
1. Section 501(r) applies to organizations that
“operate” a state-licensed hospital facility. If a
partnership owns a hospital, what amount of
ownership interest will trigger the “operate”
requirement?
2. What alternative methods could dual status
hospitals use to satisfy the community health needs assessment requirement?
3. What are the potential consequences for an organization that operates multiple hospitals when
one (or more) hospital facility fails to comply with 501(r) while other hospitals successfully comply?
4. What guidance is needed (if any) regarding when a hospital organization must conduct a CHNA for a new hospital facility that it either acquires or places into service after March 23, 2010?
5. Can documenting the CHNA process for multiple hospitals together in one written report improve
the quality of the CHNAs? If so, under what
circumstances?
6. Does the IRS define the geographic community as
the Metropolitan Statistical Area (MSA) or
Micropolitan Statistical Area (µSA) in which the
facility is located. If the hospital is a rural facility
located in neither statistical area, is the geographic
community the county where the facility is located?
7. What specific qualifications (degrees, positions,
experience, or affiliations) should be necessary for
an individual or organization to be considered as
having special knowledge or expertise in public
health?
8. Should future guidance provide additional methods
that a hospital can or must use to make a CHNA
widely available to the public?
9. Can documenting implementation strategies for
multiple hospitals together in one written document
improve the quality of the implementation
strategies? If so, under what circumstances?
10. What (if any) transition rule is necessary for a
hospital organization to be given additional time
to adopt an implementation strategy for the first
taxable year in which the hospital is subject to the
CHNA requirements?
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Input may be obtained directly from the medically underserved,
low income, minority, and chronically ill populations, or it may
be obtained from their leaders or representatives.
A person can fall into more than one of these categories, and
can be listed as satisfying all applicable categories.41 The law
does not specify how many people must be interviewed or
surveyed in each category. A hospital should talk to enough
people that there is a high level of confidence in the breadth
and depth of the results.
SOURCES OF COMMUNITY INPUT
Some hospitals may not know where to start looking
for community input. Below are a few suggestions:
Individuals and Organizations
Health care consumer advocates, nonprofit
organizations, academic experts, local government
officials, community-based organizations, health
care providers, private businesses, health insurance
organizations, managed care organizations, board
members.
Government Officials
County health director, director of public health
nursing, county coroner, school superintendent, mayor,
county commissioners, state representatives
Forming committees
Committees can be useful in developing and conducting
a CHNA and in responding through the implementation
strategy. Forming these committees is not a requirement of
Section 501(r), but it is a good way to solicit community input
and draw attention to outreach efforts.
A steering committee may be created to guide and monitor
the CHNA process and make decisions. Because the CHNA is
a medical analysis that involves community members, that
requires financial consideration, and that may ultimately
impact the strategic plans of the hospital, it is helpful to
include individuals from the medical staff, nursing, finance,
marketing, and administration. Such a group would result in a
steering committee of approximately four to six people.
It may also be beneficial to create a community committee
to analyze data, form conclusions, generate ideas, and make
recommendations to the steering committee. This group may
include eight to 15 individuals who are internal and external to
the hospital, including a member of the steering committee,
doctors, nurses, local business leaders, government officials,
community leaders, and local nonprofit leaders. An additional
benefit of the community committee is that the hospital
is required to get input from most of these people anyway;
creating the committee gets their input and involves them in
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the process. Finally, the community committee can also help the hospital develop valuable outside collaboration when
the time comes to follow the implementation strategy.
Gathering input
Although it is necessary to gather input regarding community health needs, there is no specific requirement as to how
much information must be gathered. The main goal is to collect it from all of the required sources. Some guidance is
available.
First, research should not be limited to those who actually use the hospital’s services. Try to go outside of the hospital
to get information, and let outsiders provide their input about how to address health needs. Some useful, original ideas
may surface.
Second, a number of methods can be used to gather input from the community. For example:
• Interviews
• Surveys
• Questionnaires
• Focus groups
• Community forums
• Dedicated email addresses or websites where people can provide input
Because the specified process for gathering information is vague, it would be very easy for a hospital to stop gathering
data too early, or to keep gathering data for way too long. At each step, the key is to monitor for a general consensus of
issues. Once that consensus has been identified (and the hospital feels relatively confident that no other major issues
would arise through further research), it is probably time to move on to the next step.
Definition of
“community”
Profile and
Demographics
Health Indicator
Data
Key
Interviews
Steering
Committee
Meeting(s)
Develop and Refine
the Implementation
Strategy
Findings and
Results
Refine needs,
priorities and
strategies
Priorities
Widely Distribute
the CHNA
Follow the
Implementation
Strategy
Develop the
implementation
plan
Initial Strategies
Forums,
Surveys, etc.
Develop the
dissemination plan
Other Data and
Inputs
Documentation
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WRITING THE CHNA REPORT
must be completely free of charge for the individual
accessing it, and the document must be in a format that
exactly reproduces the original document when accessed,
downloaded, viewed, and printed.47 A user must also
be able to access, download, view, or print the CHNA
report without having to purchase special software or
hardware.48 The easiest way to satisfy these requirements
is to create the document in the .pdf format using Adobe
Acrobat. A link to the free Adobe Reader software would
then allow users to view and print the document.
Section 501(r) requires that specific information must be
included in the CHNA report:42
• Description of the community served
• How the community was determined
• Process and methods used to conduct the assessment
• Sources and dates of data used
• Analytical methods applied
• Information gaps that impact the hospital’s ability to
assess community health needs
• List of organizations that collaborated with the hospital
• Identity and qualifications of any third parties contracted
to assist in the process
• Methods the hospital used to receive input from persons
representing the broad interests of the community,
including when and how the organization consulted
with the persons
• List of organizations that provided input, including the
name and title of each organization’s representative(s)
• List of individuals representing government
departments or agencies
• Name, title, affiliations, and qualifications of any
individual who has special knowledge or expertise in
public health
• Name and qualifications of any individual whose
comments are intended to represent the underserved,
low income, minority, and chronically ill populations
• Prioritized description of all community health needs
identified
• Process and criteria used to prioritize the needs
• Existing health care facilities and other resources
available within the community to meet the identified
health needs
If anyone requests a copy of the CHNA report for any
reason, the hospital can satisfy its obligation by providing
the website URL or a printed copy.49 Once the report is
available on the site, it must remain available until the
date on which a new report is made available.50
THE IMPLEMENTATION STRATEGY
Section 6033(b)(15) requires that the hospital specifically
address each identified community health need regardless
of its size or significance. The implementation strategy
is considered complete when it is officially approved by
the hospital’s governing body, an authorized committee
of the governing body, or any other authorized party.51
If a committee or individual is going to approve the
implementation plan, the approval process must comply
with state laws concerning the delegation of powers to
committees52 and others. If an individual is approving the
plan, that person must also follow a process laid out by
the governing body.53 Unlike the CHNA report, Section
501(r) does not require the implementation strategy to be
widely publicized. However, the IRS is planning to require
that a copy of the implementation strategy be attached
to Form 990, Schedule H.54 The IRS has created a group
to review the Schedule H of hospitals for compliance with
Section 501(r).54
PUBLICIZING THE CHNA
The implementation strategy must address each of the
community needs identified through the assessment,
as well as either how the hospital plans to meet those
needs, or why it does not intend to meet a specific need56.
As with many details of Section 501(r), the government
hasn’t specified how a hospital must respond to the
health needs identified. Doing so is a logical future step
for the government, though. As the law now stands, it
is acceptable to say that a hospital will take no action to
address certain issues, as long as there is a good reason.
Some examples of reasons to take no action include:
There are a number of ways to make a CHNA report
“widely available,” but posting it online is the primary
method. When the CHNA report is posted online, there
must be a link to the report that is easy to locate, along
with clear instructions for accessing the report.43 The
report is considered widely available if it is on one of the
following websites:44
• The hospital’s website
• The hospital’s parent’s website
• A third party’s website — the hospital must provide the
web address of the site to anyone who requests a copy
of the CHNA report45
• The hospital is addressing other factors that are more
important
• The issue is too big for the hospital to handle singlehandedly (e.g., disease research)
• It’s not the hospital’s specialty
• The hospital has limited resources
When a website is used, it must clearly inform readers that
the report is available.46 The site must provide instructions
on how to download the report, accessing the report
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The Hidden Value in the Section 501(r) Requirements
The more thought and effort that a hospital puts into Section 501(r) compliance, the
more it is likely to get back as a return on its investment. Answering these questions
can be a first step toward realizing the value that may be hidden in the compliance
efforts.
General questions:
• What is tax-exempt status worth to your hospital?
• Is the hospital better off with a change in its tax status to “for profit”?
• Is the hospital’s specialty/focus one that works well with policy and procedure requirements?
• If the hospital is considering a new specialty/focus, how will 501(r) impact that decision?
Questions related to policies and procedures:
• Does the hospital have the necessary written policies?
• Do the hospital’s policies include all of the required provisions?
• Do the hospital’s practices around billing and collection comply with the 501(r) requirements?
• What internal review/internal control procedures are in place to ensure continued compliance?
• Does the hospital have any FIN 48 disclosures associated with the 501(r)
requirements?
• What is the procedure for correcting mistakes that are discovered?
• How can the hospital guarantee that the “limit on charges” thresholds are never being exceeded?
• Are there any public relations or marketing steps the hospital can take to capitalize on adjustments to financial assistance, billing and collection policies and procedures?
• Is the hospital’s qualification level for financial assistance at the optimal level?
• Is this the right time to increase the hospital’s focus on the needy segments of the community?
• If the hospital’s focus is changing, what is the best method to get that message out to the target audience?
• Is it time to put a greater emphasis on encouraging people to actually read the information on the availability of financial assistance?
Questions related to the CHNA:
• How much is the hospital willing to invest in responding to the identified health needs?
• Does the hospital’s budget include the costs, both in terms of dollars and time, for completing the CHNA process and following through with the implementation strategy?
• How can responses in the implementation strategy be used to make the hospital a more visible member of the community?
• What result(s) does the hospital want and/or expect to see from each response?
• How is the hospital going to measure change and effectiveness for each response?
• Can the CHNA be combined with a strategic assessment?
• Are other organizations interested in collaborating during the CHNA process in an effort to share resources and reduce costs?
• Since the CHNA documents are open to the public, are they being used effectively as marketing tools?
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Collaborating with other hospitals
Collaboration in collecting and assessing
data, and in responding to identified
health needs, is allowed.57 A hospital
could collaborate with related hospitals,
unrelated hospitals in the geographic
area, government agencies, associations,
nonprofit organizations, or others. When
there is collaboration on the CHNA
process, it is important to remember that
every hospital must prepare a separate
CHNA report specific to its community
and a separate implementation plan
that responds to the health needs of its
community, and that each hospital must
identify other organizations with which it
has collaborated or plans to collaborate.58
The IRS is currently considering if and how
it will allow joint reports59, but there is no
clear indication which direction it will take.
Opportunities to strengthen a hospital
The Section 501(r) requirements regarding
financial assistance policies and practices
are designed to soften the treatment
toward those who are struggling financially.
Consider the public relations value in
pointing out that the hospital is actively
working to be more accommodating
to those who are struggling financially.
For example, a hospital could highlight
compliance efforts in interviews, articles/
editorials, advertisements, flyers, posters,
blogs, and online postings to Facebook,
Twitter and other social media.
In addition, how a hospital responds to
its implementation strategy can make it
a more active and visible member of the
community. Brainstorming sessions may
reveal creative responses that give the
hospital a unique position. For example, a
hospital could:
• Sponsor community events like 5K runs,
marathons, bike races and sports leagues
to illustrate a concern for the physical
fitness of the community.
• Make long-term investments in capital
projects like fitness and recreation
facilities that are open to the public.
• Work with schools and employers to
improve nutrition.
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• Re-evaluate the food and snacks offered at the hospital.
• Buy back Halloween candy from children to raise nutrition awareness.
At the same time, consider the interaction of policies and practices, or the contents of the CHNA, that could have negative
consequences. For example, the CHNA may reveal that there is a specific unmet medical need in the community, and
also indicate that the hospital is doing very little to address that need. The reason(s) may seem rational and convincing to
administrators, but might be interpreted differently by the public. Be ready to answer those questions from the media,
or proactively address them.
Since the CHNA must be completed every three years, it can also be a resource for strategic planning. Coordinate the
hospital’s strategic plans with its implementation strategy to build a long-term plan. Overall, this is an opportunity to be
seen as an institution that dedicates resources to improving the health of the community. When the information that
must be collected is used to manage health rather than just provide services, it can often show the hospital in a positive
light.
Footnotes
Internal Revenue Code Section 13 Internal Revenue Code Section Explanation of the Revenue 501(r)(1)
501(r)(4)(A)
Provisions of the
“Reconciliation Act of 2010,”
2
14
Notice 2011-52
Internal Revenue Code Section as Amended, in Combination 501(r)(4)(A)(v)
3
Internal Revenue Service with the “Patient Protection
15
Exempt Organizations 2011
Internal Revenue Code Section and Affordable Care Act”
Annual Report and 2012 Work 501(r)(4)(B)
20
Internal Revenue Code Section
Plan
16
Social Security Act Section 501(r)(6)
4
Internal Revenue Code Section 1867(e)(1)
21-22
The Joint Committee on 4959
17
Internal Revenue Code Section Taxation’s Technical
5
Notice 2011-52
501(r)(5)(B) and the Joint
Explanation of the Revenue
Committee on Taxation’s
Provisions of the
6
Internal Revenue Code Section Technical Explanation of
“Reconciliation Act of 2010,”
501(r)(1)
the Revenue Provisions of the as Amended, in Combination
7
Internal Revenue Code Section “Reconciliation Act of 2010,” as with the “Patient Protection
501(r)(2)(A)
Amended, in Combination and Affordable Care Act”
with the “Patient Protection 8-10
23
Notice 2011-52
Notice 2011-52
and Affordable Care Act”
11
24
Internal Revenue Code Section 18
The Patient Protection and
Internal Revenue Code Section 501(r)(2)(B)(i)
Affordable Care Act of 2010
501(r)(5)(A)
12
Section 9007(f)(2)
The Patient Protection and
19
The
Joint
Committee
on
25
Affordable Care Act of 2010 Internal Revenue Code Section
Taxation’s Technical
Section 9007(f)(1)
1
501(r)(3)(A)(i)
Internal Revenue Code
Section 501(r)(3)(B)(i) and
Notice 2011-52
26
Internal Revenue Code Section
501(r)(3)(B)(ii)
27
Internal Revenue Code Section
501(r)(3)(A)(ii)
28
Notice 2011-52
29-32
Internal Revenue Code Section
501(r)(3)(B)(i)
33-34
Notice 2011-52
35-54
Internal Revenue Service
Exempt Organizations 2011
Annual Report and 2012
Work Plan
55
Internal Revenue Code Section
6033(b)(15)(A)
56
Notice 2011-52
57-59
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